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The Impact of Internal Trade Liberalizations on Plant Productivity and Markups

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  • Daniel Teeter

Abstract

I estimate the effects of two Canadian internal trade liberalizations on plant-level productivity, markups, and exports. In particular, I examine the New West Partnership and Trade Agreement (NWPTA) and the Trade and Cooperation Agreement (TCA), both of which sought to reduce or remove prohibitive, technical and administrative barriers to trade across provinces. Employing a control function approach, I use Canadian manufacturing data to estimate plant-level total factor productivity and markups for 2004-2012. Then, using difference-in-differences methods, I find that the NWPTA increased the likelihood that a plant exports interprovincially, increased the share of output that plants sell to other provinces, increased plant-level total factor productivity but had no significant impact on plant-level markups. The agreement raised the average plant's productivity by 1.97 percent across all post-treatment years. In contrast, the TCA had no significant impact on plant-level productivity or export behavior, but was associated with a a small increase in markups. The NWPTA has shown significant positive effects on plant performance compared to the TCA, which has significant implications for the design of internal trade agreements. Specifically, the NWPTA's negative-list approach, in contrast to the TCA's positive-list, resulted in broader coverage. Moreover, the NWPTA achieved greater progress in mutually recognizing worker certifications and business registration, as well as in harmonizing business standards between provinces, making it a more effective agreement overall.

Suggested Citation

  • Daniel Teeter, 2024. "The Impact of Internal Trade Liberalizations on Plant Productivity and Markups," Working Paper 1522, Economics Department, Queen's University.
  • Handle: RePEc:qed:wpaper:1522
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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/wpaper/qed_wp_1522.pdf
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    References listed on IDEAS

    as
    1. Jan De Loecker, 2011. "Product Differentiation, Multiproduct Firms, and Estimating the Impact of Trade Liberalization on Productivity," Econometrica, Econometric Society, vol. 79(5), pages 1407-1451, September.
    2. De loecker, Jan & Syverson, Chad, 2021. "An Industrial Organization Perspective on Productivity," CEPR Discussion Papers 16513, C.E.P.R. Discussion Papers.
    3. Moser, Christoph & Rose, Andrew K., 2014. "Who benefits from regional trade agreements? The view from the stock market," European Economic Review, Elsevier, vol. 68(C), pages 31-47.
    4. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy

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